Bonds are Bad – Here’s Why

Bonds don’t grow. As I sing in the video, “There is NO Growth in Bonds!”

SImple mathematics here folks.

10 year bond is issued at 100k. It pays 3% a year interest. Bond matures at 100k. Thus your nominal return is 3% a year. But after taxes and inflation you’ve actually LOST money.

30 year bond is issued at 100k paying 4% a year. 30 years from now you collect your $100k. After taxes and inflation (assuming inflation stayed only at 3% the entirety of the 30 years) you’ve made all of $12k

Can’t build a long term retirement portfolio with investments that LOSE money gradually over time.

And that’s what bonds do. They gradually LOSE you money.

Factor in a higher inflation for retirees because of increasing health care costs and bonds look even worse.

Some will argue that “my bond fund has averaged 7.75% a year since 1974. So I think you’re full of it Josh.”

To which I’d simply say, “yup, and you’re not going to get anywhere near 7..74% on your bonds going forward. It’s a simple mathematical equation.”

You can’t argue with the math. Well, I suppose you could, but you’d be wrong.

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